Here at 1Plus1 Loans we often get asked about debt consolidation. We can’t advise whether consolidating your debt is a good idea. That depends on the type of debt consolidation you’re considering, your personal financial situation and the loan you want to use to consolidate your loans. It could reduce your monthly payments giving you short-term relief, but a longer term could mean paying more in total interest. A consolidation loan works in that you apply for a personal loan, ideally one with a lower interest rate (check by adding up all your other credit payments and comparing your new loan), and then use the money from that loan to pay off all your loan and credit card balances at once.
When you’ve paid off all your credit, there is then only one payment to make every month to the new lender. As the interest rate on a personal loan is often lower than a credit card or payday loan, but the repayment term will be probably much longer though the new repayment may be much lower.
If you are struggling to keep up with your monthly payments loan consolidation can certainly help ease your financial stress. It may also make it less likely that you will fall behind on your repayments and risk lowering your credit score. It is important to understand that 1Plus1 will only lend to you if you can demonstrate your affordability and creditworthiness.
Taking out a guarantor loan with 1Plus1 Loans to pay off higher interest debt can be very beneficial. Your guarantor must be willing to back you and must be able to demonstrate that they too are creditworthy and can cover the loan payments if needed.
Bear in mind, even though the interest rate may be lower with a 1Plus1 loan, you could end up paying more in total interest over time because of the longer repayment terms. Once you are able to do so, an option to reduce that interest cost is to use the money you will be saving each month to pay extra on your loan each month, paying the loan off more quickly and so saving some money on interest over the course of the loan.
And a word of warning!! Just because you have some extra cash each month now, don’t go on a spending spree or think you can start taking out more new loans. That is a very slippery slope to get on to. Why not start a savings account with the money you are not having to spend each month on your loans. Maybe for a treat or towards a holiday?
Last updated: 29/12/2020